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Abu Dhabi, UAEMonday 10 December 2018

Population growth, government incentives to spur the Saudi residential market, says Knight Frank

The market fell last year, with lower levels of transactions and flattening sales prices

The Saudi government has introduced several initiatives in the past year to spur the kingdom's housing market. Ali Jarekji / Reuters
The Saudi government has introduced several initiatives in the past year to spur the kingdom's housing market. Ali Jarekji / Reuters

Saudi Arabia's residential market is expected to pick up in 2018 thanks to better economic growth and new government initiatives after the market dipped last year, according to a report from consultancy Knight Frank.

“Drivers for the market appear to be positive for the long term, which include favourable demographic dynamics, room for improvement in economic growth from current levels and economic reform programmes placing a focus on real estate as part of the diversification process,” the report said. “In recent quarters we have seen that residential real estate prices have flattened, which could be an indication that the market has bottomed out and may be close to stabilising following a year of rapid decline.”

Recent government initiatives in support of the real estate sector include the white land tax, new regulations for the use and listing of REITs, an increase in the loan-to-value ratio for first home ownership, and the launch of the Sakani programme for affordable housing.

Property sales and rental prices in Saudi Arabia and other Arabian Gulf states have declined in the last few years due to lower oil prices and general economic slowdown.

The residential market continued to decelerate in Saudi Arabia last year with lower levels of transactions and flattening sales prices, Knight Frank said.

“The trend towards a weaker residential market is mainly due to eroding market liquidity, and is exacerbated by a combination of more inherent factors, namely lack of affordability and limited access to financing, supply shortage in the mid-to-lower end of the market and lack of suitability of existing stock,” said Raya Majdalani, research manager at Knight Frank in the report.

Knight Frank's Saudi Arabia Residential Market Review focuses on the kingdom’s largest markets – Riyadh, Jeddah and Eastern Province.

In Riyadh, the picture was mixed with sales price growth for apartments rising 36 per cent year-on-year in 2017 but dropping 5 per cent year-on-year for villas.

Transaction volumes in Riyadh overall increased by 15 per cent year-on-year in 2017 while the total value of transactions dropped 3 per cent compared to a year earlier. The Saudi government delivered around 38,000 new affordable residential products in Riyadh Province last year through its Sakani programme which launched in early 2017.

In Jeddah, supply is being similarly geared towards middle-income housing to meet the demands of the city’s population, which is expected to grow at an average of 2.5 per cent each year to 2022.

Transaction volumes remained relatively unchanged compared to 2016, the report said, but the total value of transactions saw a 21 per cent year-on-year decline.

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The average sale price for apartments in Jeddah also saw little change year-on-year in 2017, but decreased by 24 per cent for villas, showing a clear shift in demand towards apartments, Knight Frank said, citing government data.

In the Eastern Province, residential property demand has been cooling over the past two years due to the sharp fall in oil prices in the highly energy-dependent part of the kingdom. However, the introduction of the ‘white land’ tax to prevent accumulation of land banks and the fall in the cost of building materials is driving development activity.

The volume of residential transactions fell by 1 per cent year-on-year in 2017 but the value of transactions dropped 21 per cent. Apartment prices remained stable but dropped 24 per cent for villas.